Tax: It’s a Sin!


Vineyard stroll
Creative Commons License photo credit: coba

The taxing of alcohol allows slimy politicians to pound their chests about the damage the drug causes and claim high moral authority for sweeping the money into Consolidated Revenue.

Slimy? Yes!

Governments say alcohol taxes are a policy tool – to discourage consumption and offset its harm. In 2009, Allen Consulting Group estimated the community cost of alcohol-related harm in Victoria alone at around $4 billion a year. So government is allegedly performing social engineering – something we could applaud.

But this is not so. If alcohol was the villain, the volume of ‘evil’ in each nip, shot, glass or pint would be taxed.

Instead, government has a complex schedule of tax rates that favour wine over beer and both over whisky. Their objective is revenue, not policy.

The Alcohol Education and Rehabilitation Foundation wants tax reform to a volumetric system – to minimise alcohol’s harm. Prosper Australia wants reform too, so tax falls properly on the ‘bad’ of alcohol.

The hypocrisy is clearest in wine.

The Wine Equalization Tax has a rebate for smaller producers. Somehow this group is entitled to a mistaken and insidious subsidy. It is mistaken as ‘smaller producers’ are hardly poor. Most boutique wineries are playthings of the wealthy, seduced by the romance of winemaking. And it is insidious as this ‘tax expenditure’ (tax revenues foregone) doesn’t show up in government accounts as a subsidy. It is merely never collected and the subsidy is therefore invisible. Allen Consulting estimates this cost at around $250 million a year.

Allen Consulting modelled several scenarios and found between $900 and $1,500 million in extra revenues were available if alcohol was properly taxed by volume.

That’s a lot of revenue foregone, drained instead from payroll and income taxes which discourage work and business taxes which burden entrepreneurs.

Government should take its revenues from economic rents – overwhelmingly Land Value Tax and the Resource Super Profits Tax. But where there are genuine policy objectives, taxing ‘bads’ can make sense, provided the tax is correctly designed.

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I commend to all Allen Consulting’s Alcohol Taxation Reform – Starting with the Wine Equalization Tax And their earlier report Alcohol-related Harm and Licensed Premises

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https://prosper.org.au/2011/09/06/tax-its-a-sin/